SCC File No: IN THE SUPREME COURT OF CANADA (ON APPEAL FROM THE COURT OF APPEAL OF ALBERTA) LEDCOR CONSTRUCTION LIMITED.

Transcription

1 B E T W E E N: SCC File No: IN THE SUPREME COURT OF CANADA (ON APPEAL FROM THE COURT OF APPEAL OF ALBERTA) LEDCOR CONSTRUCTION LIMITED -and- APPLICANT (Respondent) NORTHBRIDGE INDEMNITY INSURANCE COMPANY, ROYAL & SUN ALLIANCE INSURANCE COMPANY OF CANADA and CHARTIS INSURANCE COMPANY OF CANADA RESPONDENTS (Appellants) REPLY TO JOINT RESPONSE TO THE APPLICATION FOR LEAVE TO APPEAL (LEDCOR CONSTRUCTION LIMITED, APPLICANT) (Pursuant to Rule 28 of the Rules of the Supreme Court of Canada) SUPREME ADVOCACY LLP 340 Gilmour Street, Suite 100 Ottawa, ON K2P 0R3 Eugene Meehan, Q.C. Tel: (613) Fax: (613) emeehan@supremeadvocacy.ca LEDCOR Associate General Counsel 500, 1055 West Hastings Street Vancouver, BC V6E 2E9 SUPREME ADVOCACY LLP 340 Gilmour Street, Suite 100 Ottawa, ON K2P 0R3 Marie-France Major Tel: (613) Fax: (613) mfmajor@supremeadvocacy.ca Ottawa Agent for Counsel for the Applicant, Ledcor Construction Limited Stacey Boothman Tel: (604) Fax: (604) Stacey.Boothman@ledcor.com Counsel for the Applicant, Ledcor Construction Limited

2 OWEN BIRD LAW CORPORATION 29th Flr., Three Bentall Ctr., 595 Burrard St. PO Box 49130, Stn. Bentall Ctr Vancouver, BC V7X 1J5 Gregory J. Tucker Tel.: (604) Fax: (604) Counsel for the Respondents, Northbridge Indemnity Insurance Company, Royal & Sun Alliance Insurance Company of Canada, and Chartis Insurance Company of Canada SUPREME LAW GROUP Slater Street Ottawa, ON K1P 5H9 Moira Dillon Tel..: (613) Fax: (613) Ottawa Agent for Counsel for the Respondents, Commonwealth Insurance Company, GCAN Insurance Company and American Home Assurance Company

3 TABLE OF CONTENTS PAGE 1. Reply of the Applicant A. Widely-Used Insurance Provision Requires Clarity...1 B. Recent LEG2 Cases and the Resulting Damage Analysis...1 C. The Multi-Contractor Presumption...4 D. Inconsistent Approaches Lead to Inconsistent Results...5 TABLE OF AUTHORITIES...6 STATUTORY PROVISIONS...6

4 A. Widely-Used Insurance Provision Requires Clarity 1. In their Joint Response to this Application, the insurers begin with a lengthy analysis meant to illustrate that the legal issues raised by this case are settled law. A separate Reply filed by Station Lands focuses on this central issue, namely the absence of a proper test to distinguish between the concepts of faulty workmanship and resulting damage found in Builder s Risk insurance policies across the country. Ledcor Construction adopts and endorses the arguments as stated by Station Lands on this point and shares the view that the interpretation of this ubiquitous insurance provision continues to be a matter of contention and of pressing national importance. B. Recent LEG2 Cases and the Resulting Damage Analysis 2. The decisions in Acciona 1 (British Columbia) and in PCL Constructors 2 (Ontario) were referred to, in the Applications, as examples of recent decisions that use different approaches to distinguish between the cost of correcting faulty workmanship and resulting damage. These approaches, applied to this case, would have produced a very different outcome from the one in the Court of Appeal below, both in terms of legal analysis and concrete results but the Respondents argue that these cases are not relevant. Their position, repeated a number of times, 3 is simple: the different wording of the LEG2 standard provision requires a different analysis making Acciona and PCL Constructors inapplicable to this case. 3. The following comparison between the provisions in this case and the LEG2 provisions in Acciona and PCL Constructors demonstrate that all three policies contain the same conceptual, three-step structure, making the cases an integral part of the evolving national landscape requiring this Honourable Court s guidance: practically identical Insuring Agreements providing all risks coverage; an exclusion provision for faulty workmanship or defects in workmanship ; and an exception or limitation which provides coverage for any resulting damage. 4 1 Acciona Infrastructure Canada Inc. v. Allianz Global Risks US Insurance Company, 2014 BCSC 1568, affirmed 2015 BCCA PCL Canada Inc. v. Allianz Global Risks US Insurance Co., 2014 ONSC Joint Response at paras. 68, 70, 72 and The DE provisions, which were drafted by a different group of underwriters, and other LEG provisions referred to by the Respondents are not relevant to this case as they do not combine, as the LEG2 provision does, a faulty workmanship exclusion with either a resulting damage exception or limitation.

5 2 Station Lands/Ledcor Construction faulty workmanship type provision Clause 2 indicates that insurance coverage is provided for direct physical loss or damage to the property. Clause 4A (b) excludes the cost of making good faulty workmanship Clause 4A (b) also states: unless physical damage not otherwise excluded [ ] results, in which event this policy shall insure such resulting damage. General Coverage Provided 5 Exclusion Provision Exception or Limitation Provision Acciona and PCL Constructors LEG2 type provision The policy insures against all risks of direct physical loss or damage. 6 Acciona: excludes all costs rendered necessary by defects of material workmanship 7 PCL Constructors: states that This Policy does not insure against faulty or improper workmanship 8 Acciona: should damage occur to any portion of the Insured Property [ ] the cost of replacement or rectification which is hereby excluded is that cost which would have been incurred if replacement or rectification [ ] has been put in hand immediately prior to the said damage. 9 PCL Constructors: in the event of loss or damage caused in whole or in part by faulty workmanship this exclusion shall apply only to the direct costs that would have reasonably been incurred to rectify such fault(s) immediately prior to the commencement of such loss or damage [. S]uch loss or damage shall be deemed to be Resultant Damage The exclusion provisions contain noteworthy differences. In this Application, the exclusion is clearly limited to the cost of making good faulty workmanship. It only speaks to the work itself, not to the consequences that might flow from it. By contrast, the broader formulation of the LEG2 provisions excludes the consequences of faulty workmanship. This 5 Although the specific language relating to the definition of insured parties and the level of indemnity provided (replacement, repair, etc.) is not provided for all three cases, all indications are that the policies are essentially identical on these initial aspects. 6 Acciona, supra, at para. 72; PCL Constructors, supra, at para Acciona, supra, at para PCL Constructors, supra, at para Acciona, supra, at para PCL Constructors, supra, at para. 10.

6 3 difference in the scope of the exclusion is also consistent with alternate, broader, language available 11 and reinforces the argument that the exclusion, in this case, only applies to the cost of Bristol s faulty cleaning work, not to loss or damage caused by the workmanship. 5. Of course, the exclusion provisions must be read in light of their built-in limitations. 12 While the qualifying language is admittedly different in the LEG2 clauses, the intellectual exercise required is not fundamentally different from the one required by the faulty workmanship provision in this case. Courts must draw the line between the cost elements that form part of the excluded faulty workmanship from those covered by the policy as resulting damage. 6. The only true difference is that the LEG2 clauses contain a mechanism to draw this crucial line. When damage does occur, courts must retrace the timeline of events to determine what would have been the cost to rectify the faulty workmanship before it caused the resulting damage. This process is equivalent to determining the cost of redoing the work properly, or the cost of making right faulty workmanship. Indeed, it is difficult to conceive of a viable alternate interpretation. 7. The only scenario under which these striking parallels fail is if, as the Respondents advocate, one reads the notion of damage into the excluded cost of making right faulty workmanship. As aptly refuted by Station Lands in its Reply, to import this notion into a provision that makes no mention of excluding physical damage would be to put an entirely improper gloss on the exclusion s clear language. 8. Despite the slight variations in faulty workmanship provisions and in LEG2 provisions that will occur in individual contracts, the analysis above illustrates accurately the great similarities between the fundamental legal concepts at play in both types of insurance provisions. As a result, it is not only proper but necessary to acknowledge and indeed to rely on the parallels between these provisions for the orderly development of this crucial area of the law and to ensure consistency in matters of significant importance to developers and contractors across the country. 11 See, for example Pentagon Construction (1969) Co. Ltd. v United States Fidelity and Guaranty Company, [1977], 77 DLR (3d) 189 (BCCA) where the policy excludes loss or damage caused by faulty or improper workmanship. 12 Judgment of Court of Queen s Bench of Alberta, at para. 9 [Application for Leave to Appeal ( LTA ) Tab 2A]; Acciona, supra, at paras. 218 and 219; PCL Constructors, supra, at para. 11.

7 4 C. The Multi-Contractor Presumption 9. The Leave Application succinctly sets out that there is a presumption that the resulting damage exception applies in cases where the faulty workmanship of one contractor damages elements supplied or installed by another contractor. The various criticisms levelled at this approach by the Respondents do not withstand objective scrutiny. 10. The first objection raised by the Respondents is reliance on the Commonwealth Construction decision. Although the crux of the case was a subrogation issue, this Honourable Court made clear pronouncements on the role and the mechanics of Builder s Risk insurance. 13 Despite the Respondents objections, these important guiding principles remain valid today and can be relied upon as sound legal policy to guide the interpretation of the provisions in this case. 11. The Respondents further contend that, in any scenario involving damage to a contractor s work through the fault of another contractor, the faulty workmanship exclusion would necessarily be inapplicable, contrary to the wording of the policy and the jurisprudence. 12. Of the six cases cited at para. 85 of the Joint Response, the first four are cases of faulty design. The importance of distinguishing design flaws from faulty workmanship is discussed in the Reply filed by Station Lands. In its recent decision in Acciona, 14 the Court of Appeal for British Columbia explicitly notes that an exclusion for the cost of repairing defective design is far different from the cost of defective workmanship as the resulting damage (the scratched windows in this case) is not part of the excluded defective workmanship (the faulty cleaning by Bristol). 13. The other two cases do not support the Respondents position. In Ploutos 15, the contractor installed wood flooring without a moisture barrier, leading to rot and other problems. The Court there held that Ploutos had to bear the cost of redoing the flooring. This is the quintessential faulty workmanship scenario: there was no resulting damage, nor was this a multi-contractor situation. 14. In Ontario Hydro, 16 the Respondents claim that the insurer did not have to pay for the 13 Commonwealth Construction Co. Ltd. v. Imperial Oil Ltd. et al., [1978] 1 S.C.R. 317, at pp. 323, 324 and 328 quoted in paras of our Application. 14 Acciona Infrastructure Canada Inc. v. Allianz Global Risks US Insurance Company, 2015 BCCA 347, at para Ploutos Enterprises Ltd. v. Stuart Olson Constructors Inc., 2008 BCSC Ontario Hydro v. Royal Insurance, [1981] O.J. No. 215 [Joint Response, Tab 5A].

8 5 damage because the damaged tubes were directly subjected to faulty cleaning. 17 To infer, as the Respondents do, a rationale akin to the Court of Appeal s new test is to take great liberties with the fact that the judge does not explicitly state why he ruled as he did. It is far more likely that, in denying coverage, the Court there was swayed by the fact that Ontario Hydro had been explicitly warned not to carry out the acid wash because of the risks involved. 15. Bottom line, neither the policy nor the cases referred to by the Respondents support their contention that the multi-contractor presumption would lead to a sterilization of the exclusion. D. Inconsistent Approaches Lead to Inconsistent Results 16. The recent proliferation of legal methods used to interpret these ubiquitous insurance provisions has become worrisome. The contra proferentem approach used at trial in this case, the deeming approach in PCL Constructors, as well as the distinction made at trial in Acciona between the cost of remedying the faulty workmanship and the cost of rectifying or replacing the damaged property itself 18 all lead to a favourable outcome for the Applicants. In fact, the Court of Appeal s new test is the only approach that denies coverage to the Applicants. 17. The newly-released decision of the Court of Appeal for British Columbia, affirming the trial decision in Acciona 19 adds important elements to the debate without resolving it. The decision confirms the approach to determining the costs of repairing faulty workmanship, applies the Sattva principles shunned by the Court below, and reaffirms the need to distinguish faulty workmanship cases from other common scenarios such as faulty design and latent defects. The contrast in the analysis put forward by the two Courts of Appeal is stark. 18. This environment simply does not provide the certainty required and expected for a widely-used insurance provision in a key economic sector. Guidance that will reduce unnecessary litigation across Canada from this Honourable Court, at this time, is being waited for. ALL OF WHICH IS RESPECTFULLY SUBMITTED this day of August, 2015 Eugene Meehan, Q.C. Counsel for the Applicant Stacey Boothman Counsel for the Applicant 17 Joint Response at para Acciona, supra, at para Acciona, 2015 BCCA 347.

9 6 TABLE OF AUTHORITIES Cases PARA. Acciona Infrastructure Canada Inc. v. Allianz Global Risks US Insurance Company, 2014 BCSC , 3, 16 Acciona Infrastructure Canada Inc. v. Allianz Global Risks US Insurance Company, 2015 BCCA , 17 Commonwealth Construction Co. Ltd. v. Imperial Oil Ltd. et al., [1978] 1 S.C.R Ontario Hydro v. Royal Insurance, [1981] O.J. No PCL Canada Inc. v. Allianz Global Risks US Insurance Co., 2014 ONSC , 3, 16 Pentagon Construction (1969) Co. Ltd. v United States Fidelity and Guaranty Company, [1977], 77 DLR (3d) 189 (BCCA)...4 Ploutos Enterprises Ltd. v. Stuart Olson Constructors Inc., 2008 BCSC STATUTORY PROVISIONS N/A